Refinance a mortgage at the right time and for right reasons

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Are you burdened with rising monthly payments and seeking better terms and conditions on your mortgage? Or, are you looking to consolidate your unpaid debts and get rid of them faster? All these mortgage scenarios and many more can be accomplished by mortgage refinancing. To get the basic idea on refinancing, go through these topics:
Do it yourself!

What is mortgage refinance?

With mortgage refinancing, you can replace your original mortgage with a new one with better terms and conditions but the new mortgage should be within your affordable limit. The same property that you used as collateral to secure the original mortgage is used to secure the new loan also. The new loan proceeds are utilized to pay off the existing mortgage. In case there is any remaining money after paying down the original mortgage, that amount can be used to meet other financial obligations.

Example: Suppose each of the two borrowers A and B took out mortgage loan worth of $500,000. Again, say after 5 years, both A and B paid down $250,000. So, for both these borrowers, remaining unpaid mortgage amount is $250,000.

Borrower A then took out another loan worth of $250,000, so as to repay the remaining balance on the existing mortgage. This depicts a case of simple refinance.

Borrower B then took out another loan worth of $350,000. Out of this new loan amount, B used $250,000 to pay down the original mortgage. B could use the remaining $100,000 to meet other financial obligations. This describes a case of cash out refinance.

The first scenario is a simple refinance while the second is that of a "cash-out refinance".
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5 Reasons that make refinancing sensible

There are some strong reasons which make mortgage refinance a very sensible move. Here we delve upon 5 of those -
  • To reduce monthly payment:
    If the mortgage rate is lowered or if the mortgage term is extended, your monthly payment amount gets reduced. With reduced monthly payment, you can pay off your mortgage with more ease. In case the term of the loan is extended, you have to however pay more in interest during the whole life of the loan.

  • To switch from ARM to FRM:
    Fixed rate mortgage (FRM) offers you the certainty of making fixed payment over the term of the loan. Whereas, in case of adjustable rate mortgage (ARM), the monthly payment amount may rise or fall, depending upon the prevailing mortgage rate. So, in case of ARM, the monthly payment amount is not fixed; rather it is uncertain. If you are looking for certainty in payments, then you can convert your existing ARM to an FRM through mortgage refinance.

  • To repay mortgage faster:
    If you want to pay down the mortgage early, then you can shorten the term of the loan. However, here your monthly payment amount increases. Here, over the term of the loan, you save more in interest payments. You also attain property ownership early.

  • To combine two loans into one:
    If you have adequate equity in your property, you can then consolidate your first mortgage and the second mortgage into a single mortgage. The main advantage of this type of consolidation is that the monthly payment on the single loan is less than the combined payments on the 1st mortgage and the 2nd mortgage.

  • To pay off high interest debts:
    If you have sufficient equity in your home, you can opt for a cash out refinance. You can use the remaining money to pay high interest debts such as credit card bills, car loans, installment loans etc.


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What is the best time to refinance?

You may not always be eligible for refinancing or the situation may not always be conducive for refinancing. You have to time your move correctly so as to reap its benefits. You need to check out these crucial things carefully before applying for mortgage refinancing -

  • If you have built up equity:
    You may be eligible for refinancing when you have built up equity of at least 10% in your home. However, for mortgages owned by Fannie Mae, the equity requirement is 5%. It is possible to get the refinance approval even with less than 5% equity, but in that case you may have to pay a certain sum of money to compensate for the deficiency in equity.

  • If the refinance rate is sufficiently low:
    If the current mortgage rate is sufficiently lower than the rate on the original mortgage, then it may be wise to opt for refinancing. Here, you need to follow the 2% Rule. As per the 2% Rule, refinancing is beneficial for you in case the refinance rate is 2% lower than the rate on the original loan. Here, the savings accrued from low rate outweigh the costs of the new loan after a certain period of time, which is called the break-even period. To get benefits of refinance, you have to stay in the house at least till the break-even period.

  • If you have removed negative items and paid off debts:
    Before plunging into refinancing, obtain your credit report from the credit bureaus and review it carefully. If you find some negative items such as collections or late payments, dispute those items immediately and get those items removed from your report. Prior to refinancing, pay down as much debts as possible. All these will work in your favor in getting the refinance approval.

  • If you have no late payments in past 1 year:
    If you have history of late payments in the past 1 year, then your refinance appeal may be rejected. So, before refinancing, make sure you don't have any late payments in the past 1 year.
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When refinancing is not a good idea?


Despite the fact that refinance has several benefits, it is not always a good idea to go for mortgage refinancing. There are some cases when your refinance appeal is rejected by the lender or it may not fetch the desired returns. Here are some cases when refinancing is not a good idea at all-


  • If the property value has declined sharply:
    If the value of your property has declined appreciably, the remaining balance on your original loan may be higher than the refinance loan amount. In other words, with the new loan proceeds, you won't be able to pay down the original mortgage loan.

  • If you have already used up your equity:
    Your equity is the key to get approved for refinancing. If you have already used up your equity by taking out a home equity loan (HEL) or a home equity line of credit (HELOC), then going for refinancing would not be a good idea.

  • If you have only a few years left on the existing loan:
    It does not make good sense to go for refinancing if you have only a few years left on your existing loan. It is not rational to refinance the loan which you have almost paid off. If you have almost paid down a 30-year fixed rate mortgage, then it is unwise to opt for refinancing. After all, refinancing is just like taking out a new loan and all the costs associated with taking out a fresh loan are applicable here too.
If you have the right reasons and if the time is right, then you can surely seek for mortgage refinance. However, before making the final decision, do the necessary research, take quotes from different lenders, make a comparative analysis and choose your lender.
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Last updated on October 3, 2013
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Mini Profile  smithsussane
smith.sussane



Joined: 18 Sep 2008
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Hi Tasha!

Welcome to the forums!

You need to contact your present lender who will check out whether or not you have equity in the property. If you have equity in the property and meet the required criteria of the lender then you will be able to refinance your timeshare.

Feel free to ask if you've further queries.

Sussane
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Tasha

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Post     Post subject: Refinance

How can I go about refinancing a timeshare ?
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Mini Profile  adonis
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Welcome Sandy,

It's a tough time that you are going through! It will be difficult for you to qualify for a refinance so soon after your Chapter 7 bankruptcy filing. Moreover, your credit and employment situation may also create problems for you in qualifying for the loan.

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Sandy Brady

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Post     Post subject: Refinancing

Hi~ I filed Chapter 7 Bankruptcy in Aug., 2012. I'm 55 yrs old, live on, Soc. Sec. Disability, and a small pension. My live in boyfriend, also disabled & on SSD, is dying. With my SSD income, and pension, I'm allowed to work Part time, as long as my wages (from the job)don't go over, $900.00. However, due to my disabilities, I will (possibly) be able to do certain task(s), may be difficult for me to find employment, don't know @ this time..but I would have the, ADA protecting my rights, hopefully anyway. I know me, I know I can do this! Anyway, to go on, I have 2 mortg's. The 1st mortg rate is, 4.875%, monthly payment is: $729.00,balance owed, $85,000.00. My 2nd mortg rate is, 8.950%, monthly payment is, $288.37, balance owed, $33,000.00.
Average worth of house (this is what homes are selling 4 in my cul-de-sac), $145K - $165K. I will go ahead & apologize for wasting your time. I've already attained info from other Mortgage Companys, & none of them could help me. I'm at the end of my rope, I wanted to try 1 last time, before I let go of my rope. Much gratitude though for you in taking time from your busy schedule to read my lengthy message....sorry again. Sandy Brady, God Bless!
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Mini Profile  jameshogg
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Hi Guest,

In order to change your fixed rate mortgage to an adjustable rate mortgage, you will have to refinance the loan. In order to do so, you should have equity in your property. You should meet all the other required criteria of the lender. You should contact your lender and he will let you know about the steps.

Thanks
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I want to shift from my current fixed-rate mortgage loan to the adjustable-rate mortgage plan.
My questions are:
1. Am I eligible or not?
2. If possible, what are the steps I need to follow?
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Mini Profile  adonis
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Mobile homes lose value quite fast. You will have to check out whether or not there is equity in your property. If yes, then you may get a refinance. You will have to contact the local lenders and apply for the refinance. If you meet all the required criteria of the lender, then getting a refinance won’t be difficult.
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arnet brantley

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Post     Post subject: refince my moudle home

igot a 2012 moudle home i have my on land i owe 70,000 on it it is finace at 6.59 i looking to refince at a lower rate my credit is fair it is 635
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I will suggest you to look out for other lenders in order to get a mortgage refinance.
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drjordanwa

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Post     Post subject: refi on rental/investment condo in Winter Park, CO

I was almost finished with a $50,000 cash-out refi for my condo. My son lives in one room and the other 2 rooms are rented out. So it is a 'rental' for IRS tax purposes. It is a 1976 built building, 12 Units in bldg, only my unit is a 'rental' property (all others are owner occupied vacation units), 25+ buildings in project. Building is 'operated' by its own HOA which levies all operating and maintenance and improvements to the owners.
The 'last' glitch I ran into was that the Underwriter would not accept the risk because the HOA only has a $12000 reserve and they tell me the Freddie Mac REQUIRES the HOA have a 20% reserve based on the Appraisal. My unit appraised for $190,000 so the Underwriter will not 'do' the refi unless the HOA has a reserve of at least $38,000.
I don't understand this 'requirement' because that reserve only relates to 'my' appraisal. If they want the HOA to have a 20% reserve, I would think that would relate to 20% of all 12 units in the building, which should push about $400,000 (Bldg insured for $2.2M). That will not happen.
Is there some other information I should look for? or another Mortgage company to look to for refi? Sad
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Mini Profile  adonis
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Welcome sheila,

Most modular homes lose their value very sson.. As a result most of the lenders are not interested in giving you a mortgage refinance. This community has a large number of lenders. You can seek a no obligation free mortgage quote from them and check out if they can help you in this regard.

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sheila w

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All I want to do is refi my modular home. I just want the lower intrest rate and to be able to pay it off sooner. Why is it so hard to find someone who does refi on modular homes...
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Mini Profile  smithsussane
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Hi!

Welcome to forums!

As 3 years have passed since your Chapter 7 discharge, you may not qualify for a conventional loan. You should contact the local FHA lenders and check out your options.

Feel free to ask if you've further queries.

Sussane
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lynn

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Post     Post subject: refinance after chapter 7

I am trying to refinance (cashout) 3 yrs after chapter 7 due to business closure. Have a primary which is top end mobile home but also have second home. What lender would consider providing a mortgage for one of these?
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Mini Profile  smithsussane
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Hi dannyboy!

Welcome to forums!

You will be able to refinance your mortgage provided you have a good credit score and income. Apart from this, you should also have equity in your property in order to get a refinance.

Feel free to ask if you've further queries.

Sussane
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